Business environment trustworthiness and employee income share

Min Bai, Yue Li*, Chia-Feng Yu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Using China's social credit pilot program as a quasi-natural experiment and a sample of listed firms from 2011 to 2019, we provide robust evidence that employee income share rises as business environment trustworthiness improves. Notably, this increase is primarily driven by rank-and-file employees rather than executives. The mechanisms behind this trend include enhanced talent agglomeration, reduced agency problems, and eased financing constraints. The effect is more pronounced for firms facing greater competition, weaker corporate governance, poorer information environments, or located in less marketized regions. Further, the rise in employee income share positively impacts firms' future financial performance. These findings indicate that in a more trustworthy marketplace, where more customers and investors are likely to engage, firms—particularly those struggling to attract customers and investors—place greater value on rank-and-file employees and increase their income share. This behavior fosters employee reciprocity, leading to improved firm performance.

Original languageEnglish
Article number104201
JournalInternational Review of Financial Analysis
Volume103
DOIs
Publication statusPublished - Jul 2025

Keywords

  • Business environment
  • Income share
  • Rank-and-file employee
  • Trust

Fingerprint

Dive into the research topics of 'Business environment trustworthiness and employee income share'. Together they form a unique fingerprint.

Cite this